Month: October 2017

The South China Sea has long been a focal point in US-China relations. Home to large fishing grounds and abundant oil reserves, the sea provides most food and energy to its 620 million inhabitants and serves as a waterway for 1/3rd of global maritime trade, $1.2 trillion of which travels either to or from the US. But all is not well in paradise. Six governments currently contest sovereignty over the sea’s islands and resources, including China, Brunei, Malaysia, Taiwan, Vietnam, and the Philippines. Although no single government has ever dominated the region, China has employed increasingly aggressive tactics to assert control over the waterway, delineating a supposed ‘nine-dash’ line within which it proclaims ‘undisputed sovereignty.’ Since 2014, the People’s Republic of China (PRC) has reclaimed 3,000 acres of land, constructed military facilities on artificial islands, harassed foreign ships in nearby waters, and blockaded reefs in foreign exclusive economic zones. In response, Southeast Asian nations have turned to the United States as their most powerful military and economic ally to help deter Chinese maritime advance and reclaim disputed land. Although the US remains officially neutral, whichever policy it chooses to adopt in the coming years will surely define its relationship with both China and its Southeast Asian neighbours, thereby shaping the regional – and possibly, global – balance of power.

SIMON SAYS

In July’s publication of Foreign Affairs, former US-policy advisor Mr. Ely Ratner argues that Chinese regional hegemony would represent a ‘devastating blow’ to the United States, whose current policies he condemns as risk-averse and ineffective. According to Mr. Ratner, deterrence has failed principally because American leadership never explicitly stated how it would respond to further Chinese transgressions in the South China Sea. Likewise, international organisations such as the UN, the G-7, the EU, and the Association of Southeast Asian Nations (ASEAN) have never instated concrete sanctions to enforce their condemnation of Chinese expansion, thereby undermining their influence over Beijing’s maritime policy. President Trump’s recent pledge to increase military expenditure in the South China Sea is equally vain: Chinese leadership may be intimidated by America’s military might, but it also knows that the US does not value the South China Sea enough to enter a costly and difficult confrontation over it, especially given Mr. Trump’s regular assertions that he champions ‘America First.’ No matter how many US warships are deployed in the sea, China will not change its policy so long as US statesmen don’t concretise theirs.

Mr. Ratner proposes a series of measures which would function as strategic deterrence against China’s maritime advance. First, the United States should issue a clear warning that if China continues the construction of artificial islands and military bases, the US will forgo its position of neutrality and declare its opposition to ‘Chinese coercion.’ It should then cooperate with the region’s nations to ‘reclaim land’ and ‘fortify bases’ within their exclusive economic zones. Second, Mr. Ratner proposes that the United States conduct joint military exercises à la NATO, as well as sell ‘counter-intervention capabilities’ to their partner countries. If Chinese militarisation continues despite these measures, Mr. Ratner advices the US to negotiate deals which permanently station US troops at local military bases. Such negotiations would be paired with strong economic support to the region, in case China responds with economic sanctions. Finally, Mr. Ratner encourages the United States to complement these measures by supplying intelligence on Chinese manoeuvres and military developments to Southeast Asian news outlets, thereby engaging the public and placing more pressure upon China’s leadership to halt maritime expansion.

However, Mr. Ratner’s proposals are both unrealistic and disproportionately aggressive. Considering that China is already wary of American presence in the region, these proposals would increase hostilities and the risk of escalation between China and the US. Furthermore, Mr. Ratner fails to account for mitigating circumstances, such as North Korea’s nuclear program, which require the United States to compromise with China on other issues of relatively lesser importance. Finally, Mr. Ratner overestimates the risk Chinese regional hegemony poses to the US’s economic and political power, making his proposals inappropriate and reckless. In order to maintain regional stability and reassure its allies, the United States should employ much tamer policies which enforce freedom of navigation in the South China Sea without overtly provoking or alarming Chinese leadership.

WHO’S AFRAID OF XI JINPING?

First, Mr. Ratner’s policy proposals are somewhat idealistic. For instance, he defends the need for American assertiveness with reference to the Obama administration’s threat of economic sanctions in 2015, which succeeded in stemming China’s state-sponsored theft of U.S secrets. However, Mr. Ratner does not acknowledge that Beijing is virulently opposed to letting the United States tilt the regional balance of power in favour of Western allies. Besides, Mr. Trump’s penchant for brash rhetoric suggests that any ‘warning’ about shedding neutrality and opposing China would likely be dismissed as hollow showmanship. Furthermore, the US cannot afford to provoke the PRC over the South China Sea given the current imperative to collaborate in response to North Korea’s nuclear threats. The ongoing crisis means the United States will inevitably have to compromise with respect to this – and other issues – in order to encourage China’s cooperation.

Mr. Ratner’s proposals also have high risk of backfiring, causing needless hostilities between the US and China. At the moment, three scenarios circulate regarding the latter’s future. Some suspect that the PRC aims to surpass the United States economically and politically, becoming the new global hegemon in the next 100 years. Alternatively, it could remain a mere regional hegemon, albeit one with significant global influence. More likely, China will become increasingly powerful in global governance and will share this power with the United States. In step with these predictions, US-China relations are often characterised with reference to the ‘Thucydides trap,’ the ancient Greek historian’s observation that rising powers often engender fear and insecurity in neighbouring hegemonies. Thucydides contended that this insecurity always increases hostilities, distrust, and the risk of misunderstandings, making confrontation inevitable. Although the notion of ‘inevitable’ conflict is exaggerated, international power imbalances certainly create fertile ground for conflict, where diplomatic miscalculations can rapidly exacerbate existing tensions. In the case of China and the US, Thucydidean risks are compounded by their civilizational differences. The two states have radically different conceptions of good regional governance, with China adopting more of an authoritarian approach, and the US favouring an international rule of law. These competing visions increase the risk of misperceptions within both governments regarding activities in the South China Sea. Indeed, political scientist Graham Allison warns that American policymakers have yet to improve their understanding of Chinese leadership’s attitude toward military force, which is intensely pragmatic and largely unconcerned with international norms. Therefore, placing US troops on local bases and conducting joint military exercises would probably alarm Chinese leadership and motivate further militarisation rather than deter it.

In his History of the Peloponnesian War, Thucydides also recounts how Athens’ intervention in a dispute between Corinth and Corcyra sparked a series of clumsy diplomatic manoeuvres which the Spartan alliance interpreted as aggressive and tyrannical, thereby serving as a pretext for Sparta’s involvement. What was originally a relatively minor conflict escalated into a dramatic confrontation between the two greater powers of the ancient Greek world. The US should heed this precedent and take care to evaluate whether Chinese hegemony in the South China Sea presents enough of a security threat to warrant hostile policies which increase the risk of escalation and, as in ancient Peloponnese, lead to confrontation. If the United States’ priority is to avoid confrontation – as opposed to contest Southeast Asian hegemony – it may be best to eschew Mr. Ratner’s proposals and opt instead for strategic reassurance, whereby states decrease mistrust and the likelihood of confrontation by establishing joint political and economic commitments. As of yet, this seems to have been the preferred strategy for both the US and China, exemplified, for instance, by the latter’s efforts in devising an EU-China Investment Agreement. Strategic reassurance is also enforced by the two nations’ important economic co-dependency: the US is China’s top trading partner, whilst Beijing is the biggest purchaser of US government debt. Ultimately, this suggests that Chinese regional hegemony is not as much of a threat to the US as Mr. Ratner claims.

Nevertheless, American allies such as Japan and Vietnam are unnerved at the thought of leaving China in control of the waterway, which some statesmen believe could compromise their traders’ freedom of navigation. For instance, the People’s Liberation Army (PLA) have bolstered their ‘area-denial capabilities,’ which aim to prevent other states from navigating or occupying vast stretches of the South China Sea. In order to reassure these allies, the United States should adhere to the aforementioned strategic reassurance as well as enforce its ‘freedom of navigation’ patrols in the region, which help defend exclusive economic zones without provoking Chinese leadership.

Ultimately, Mr. Ratner’s proposals for US economic and political intervention in the South China Sea are excessively agressive, increasing hostilities between two nations which instead need to prioritise cooperation in other, more pressing issues of military and economic importance. The United States would do better to pursue a middle ground, whereby it continues strategic reassurance whilst also conducting legally authorised naval patrols which reassure its allies and mitigate China’s assertiveness.

It is not often that one may relate economic policy to banal aspects of our daily lives. In this article, Ewa Puzniak has done so applying Ostrom’s economic analyses to the TV series ‘Game of Thrones.’ Beware: This article is full of spoilers! Read at your own risk.

The Game of Thrones craze has indeed swept the world. The show is perceived as great entertainment but we can still learn about public and social policy from the Emmy winning series. Game of Thrones has introduced us to a world that is heavily based on analogies rooted in the War of Roses, Hobbes and Machiavelli. This article seeks to relate the policy-heavy works of Elinor Ostrom to a dilemma that the protagonists face in the seventh series, with the wider aim of proving that policy is not simply a dry field restricted to academics and bureaucrats alone. Rather, I seek to demonstrate intrinsically linked to issues that we deal with on a daily basis. In fact, as this article shall establish, the approach of solving collective challenges presented in Ostrom’s works may be applied to climate change, financial crises, every day scenarios and even Game of Thrones!

During the first six seasons of the show, the scramble for the legendary Iron Throne has left the continent of Westeros divided and weak amidst the harsh bleak winter. Three characters play a significant role in series 7: Cersei Lannister currently in possession of the Westerosi crown; Jon Snow – The King in The North; and Daenerys Targaryen, the descendent of the former ruling dynasty now coming back to Westeros to claim the throne. Only at first the intrigues and the bloody battles are the major themes of the show. A deadly threat is coming from the North and every inhabitant of Westeros is now in danger. The enormous army of Whitewalkers, zombies created and led by the Night King is about to pass the mythical Wall and invade the continent.

The three protagonists are faced with an extremely difficult situation that might be described by economists as a “collective action problem”[1]. Jon Snow, as he is in direct danger and he will not be able to defeat Whitewalkers alone, seeks help from the South. He manages to form an alliance with Daenerys. However, their forces may still not suffice to overcome the threat. The support of Cersei would definitely give them the edge and it would assure Daenerys that Westeros will not be conquered by Cersei in the meanwhile.

We can use basic Game Theory to analyse this scenario. Cersei and Daenerys have different pay-offs resulting from their different characters. Daenerys as an agent willing to contribute proves that she definitely is a “conditional cooperator” [2]. She stands in contrast to Cersei, who displays the signs of rational agent pursuing self-interest and willing to “free-ride”, in order take advantage of the public good; which is in this case the defence of the continent. Moreover, the utilities of both players are contrasting. Cersei definitely prefers to die rather than to see Daenerys on the Iron Throne. As a rational agent, Cersei’s best response is betrayal. She considers two situations. First, if Daenerys and Jon defeat the Whitewalkers, their army will be weakened and thus, easy to beat. Second, if Daenerys and Jon lose, the Whitewalker army will be depleted and in consequence, easier to defeat. This is a variant of the classic game of Prisoners’ Dilemma where the best personal outcome is always to defect[3].

A way out of this impasse is to transform the Prisoners’ Dilemma into the Stag Hunt. This action involves increasing the benefits so as to create an additional equilibrium where both actors cooperate[4]. This way the players do not have an incentive to defect anymore. They both know that by not working together they will not achieve higher pay-offs. Thus, in the Stag Hunt scenario players will cooperate as long as they trust each other. In order to overcome the Collective Action Problem and create a “collaborative equilibrium”, Cersei’s incentive must be altered. Jon and Daenerys need to increase Cersei’s benefits. Yet, to achieve that, Daenerys would have to abstain from her life mission to retake the Iron Throne. Even though she is a conditional cooperator, she would not abandon her principal purpose. Therefore, the Nash equilibrium and Prisoners’ Dilemma will prevail.

The question stands though; if both sides cannot come to the all-encompassing agreement does it mean that Westeros is destined for total annihilation? Not necessarily. We can observe many economists and political scientists trying to understand the collective action problems in real life. The example might be environmental protection. Going even further, we could compare the Whitewalkers to climate change [5] since both could be seen as collective action problems. Many addressed this issue but I will focus mainly on Elinor Ostrom who adopted a different approach to the role of institutions in policy making. She stresses the priority of acting locally instead of waiting for an agreement on the global scale[6]. Ostrom also argues against a single solution policy to overcome such a complex problem. Hence, she and Vincent Ostrom advocate for the polycentric way of providing services that involve polycentric governance [7]that rely on decision-making at a local level[8]. Namely, if lower tiers of governance seek to collaborate together they can scale up on an ad-hoc contractual basis in order to address the issue that requires higher resources and a higher scale of production in order to endogenously match the scale of the problem.[9] An example of the combination of global and polycentric approaches might be a policy involving pricing the externality.

A prime example of this is the approach towards Carbon Tax. Carbon Tax introduced and set on a certain level by international organisations is a global action. However, the detailed strategy for reducing the emission is developed on a state and sub-state level. The weak point of the aforementioned policy is path dependency. We need to consider a position when the global agreement places us on a wrong path. Here, it imposes the tax on the wrong level. If the tax is not suitable, the cost of Carbon might surpass the cost of climate change and thus, this tax defeats its purpose. In this situation, local efforts will not be able to reduce the cost of climate change.

Furthermore, the danger of the Whitewalkers resembles financial shocks. During the 2008 financial crisis, banks experienced liquidity shortage. This had a dramatic impact on the global economy, especially because banks did not react and coordinate monetary policy with adequate speed. Since polycentric governing is characterised by its better responsiveness due to contextual knowledge and faster feedback, [10]this strategy could have been viable in the crisis circumstances. Instead of waiting for the state to intervene, banks could arrange themselves privately in so-called ‘clubs’. [11]Thanks to this decentralised system, clubs could have quickly and efficiently foreseen and recognised where the financial imbalances would occurred and provide the liquidity.

Another complementary aspect of the solution for climate change recommended by Ostrom is public entrepreneurship. This approach consists of “creating focal points for coordination”. [12]Public entrepreneurs convince communities to come together to tackle a problem. For instance, after Hurricane Katrina hit the US, many people abandoned their home without the intention of returning as long as their neighbourhoods’ remained empty. It created a situation whereby nobody was prepared to return first. This collective action problem was solved by churches who acted as social entrepreneurs by convincing people to come back.[13]

Henceforth, both polycentric governance and public entrepreneurship offer a real answer to the collective action problems such as climate change and financial shocks. Nonetheless, the question emerges as to whether these approaches work even within the Game of Thrones scenario.

We already established that bargaining cost of Daenerys, Jon and Cersei reaching a cooperative consensus that is far too high. Instead of waiting for the global agreement, Jon and Daenerys should have decided to pursue local steps and act as public entrepreneurs by establishing focal points for coordination.

In the last episode of series 7, Jon and Daenerys present a previously caught Whitewalker to Cersei in order to prove the dire nature of their present situation (and to convince her to join forces). What they should have done instead, was to show the creature to Cersei’s bannermen (vassals that supply Cersei with their armies) and convince them to fight the threat together. Assuming that some of them are “conditional cooperators” [14]they would want to join the side of Daenerys and Jon despite Cersei’s wrath. The forthcoming Whitewalkers pose a much more pressing risk to local folk than the inner-rivalry of Westrosi Houses. Therefore, Jon and Daenerys would have been able to provide the public service of defence on a massive scale. Arriving to the Pareto efficient outcome due to scaling up the resources and production of the service would have been possible thanks to Ostromian multi-party agreements on an an ad-hoc basis (as well as Coasian bargaining). At the same time, Cersei would be helpless and too weak to conquer Westeros.

Similarly, not every lord under Cersei’s rule needs to provide military service to Daenerys and Jon. Ostrom [15] stresses the importance of diverse local institutions addressing the issue in diverse ways using their comparative advantage. Certainly, further down South, the less Westerosi sense the threat coming and their incentive to actively fight is weaker. Hence, they might contribute in a different way. After all, war requires different resources such as military force, strategic thinking, weapons, ammunition, logistics, finances, food and supplies, as well as means of transport. For instance, the Reach, famous for its fertile lands may grant its crops and feed the soldiers on ad-hoc con contracts, creating Coasian bargains with the rest of Westeros. This polycentric approach will definitely provide a potential alternative and an emergency solution in a faster and more effective way by involving the local actors and thus, avoiding the “Tragedy of the Commons”.

In conclusion, the Prisoners’ Dilemma which appears in Game of Thrones as well as in real life (when dealing with climate change or financial shocks) is an issue that is undoubtedly extremely difficult to solve. The purpose of this article is to draw attention to Ostromian alternatives to solve these real social dilemmas in a manner that is radically different to the narrow-minded single global policy solutions. This article has also sought to prove that polycentric systems of governing have huge potential not only to replace the existing systems; but rather to compliment them as well (such as with Carbon tax). Furthermore, a polycentric policy approach allows us to act immediately instead of waiting helplessly for an international agreement, much bureaucracy and state-scale procrastination.

This article has been written by Ewa Puzniak, editor at the Business & Economic policy-centre of King’s Think Tank. She would also like to thank Professor Mark Pennington a great deal for his support & feedback (Department of Political Economy, KCL) as well as Pablo Paniagua Prieto.